The European Central Bank, as expected, left interest rates unchanged at its policy meeting Thursday. We produced a live blog, detailing ECB President Mario Draghi’s monthly news conference and the market reaction.

No surprises from the ECB Governing Council as it opts to hold its key lending rate, known as the refi rate, at 0.15% and maintains its deposit rate at minus 0.10%.

Stephen Pope, managing partner of London-based Spotlight Ideas says the decision implies that with the backdrop of dreadful European data, the standoff between the European Union and Russia over Ukraine and Portugal’s bank troubles, “the press conference becomes ever more critical in terms of delivering clarity.

“The market is pricing in lower inflation and so President Draghi will be under pressure like never before,” Pope said, in a note.

The ECB offered up a whole toolbox full of measures at its June meeting, including a cut to the refi rate, the negative deposit rate, and targeted long-term refinancing operations, or TLTROs in financial market jargon.

Since the first TLTRO doesn’t take place until next month, it won’t be a surprise if Draghi and company take a wait-and-see approach before announcing further actions, writes Jennifer McKeown, senior European economist at Capital Economics.

But that doesn’t change the fact that recent data backs up the case for bolder action, she says. Euro-zone annual inflation was measured at just 0.4% in July, versus the ECB’s mandate of near but just below 2%, while monthly figures point to stagnant GDP in the second quarter and economic risks stemming from the Ukraine crisis are also on the rise, she notes. Here’s how she thinks Draghi will approach the news conference:

Draghi is likely to acknowledge the recent weakness of economic indicators and perhaps reiterate his recent assurance that full-blown quantitative easing lies squarely within the ECB’s mandate. But he will probably point to the continued stability of market-based measures of long-term inflation expectations to support the Bank’s view that QE is not yet warranted.

Draghi might also point to the euro’s decline and in ever-falling bond yields to argue there’s less need for further policy measures, McKeown said. She still, however, expects the ECB to eventually implement a full program of asset purchases, but says this might not happen before the end of the year.

Data on Wednesady showed Italian gross domestic product shrank by 0.2% in the second quarter, technically meeting the definition of recession. One could argue that the country was never actually in recovery despite one quarter of meager growth at the end of last year. And not all economists are convinced that the euro zone’s much-heralded return to growth in 2013 marked the end of the region’s recession, arguing instead that it may simply be a “long pause” in a continued downturn. Read our First Take on Wednesday’s Italian data here.

Draghi says developments are consistent with a “moderate, uneven” recovery. He acknowledges that risks to the economic outlook are weighted to the downside.

On inflation, he says the slip in annual inflation to 0.4% in July from 0.5% in June is largely due to a fall in energy prices. Inflation is expected to remain at low levels in coming months before gradually rising through 2015 and 2016, he says.

The situation in the euro zone has grown less dire for banks. They report that lending pressure has eased, and that they’ve seen an improvement in demand for loans from businesses and households, Draghi says.

ECB assessment of balance sheets is of key importance, and banks should use the opportunity as a learning experience.

Draghi says the targeted long-term refinancing operations to see heavy participation of around a half-trillion euros. He says the indications from the ECB’s bank lending survey, which shows a gradual pickup in demand for loans, are evidence that the timing for the measures is right.

Draghi says geopolitical risks around the world are higher than they were a few months ago and that problems in Ukraine will have more impact on the euro zone than on other regions.

Financial institutions directly tied to Russia probably number less than a half dozen, he says, but adds that it’s difficult to tell what the overall impact of sanctions and Russian countersanctions will be.

He says geopolitical developments are one reason why the ECB sees risks to the economic outlook skewed to the downside.

Draghi says the dip to an annual rate of 0.4% wasn’t a surprise and reiterates that the fall was due to lower food and energy prices. Stripping out food and energy, inflation would have been 0.8%.

Still that’s quite low, he acknowledges, but says medium-term inflation expectations remain anchored. He says an analysis that shows inflation expectations over the five-year horizon, using breakeven rates, is misleading because it isn’t focused on the whole universe of bonds.

Draghi is asked about Italy’s dismal second-quarter GDP data. The former Bank of Italy chief notes a low level of private investment, which he acknowledges isn’t necessarily unique to Italy in the euro zone.

But part of the issue does come down to the lack of structural reforms and the uncertainty it produces, he says, which is a “powerful factor” that discourages investments.

Draghi says the ECB’s actions, particularly the move to a negative deposit rate, in June have had a significant impact. The ECB has effectively “decoupled” euro-zone monetary conditions from the United States, he says.

Draghi says the fundamentals for a weaker exchange rate are better now than they were 2 to 3 months ago. Investors realize that monetary policy paths in the euro zone and the United States will be diverging for a long time.

Draghi is asked if he expects to see diverging inflation activity within the euro zone itself.

Draghi says some countries will see inflation above the target of near but just below 2%. Any development that would bring overall rate to the target is welcome, but he emphasizes that it’s not the ECB’s job to set wage policy.

For southern countries witnessing downward price pressures, the question is whether it will be a “short-term ” phenomenon or could it turn into a deflationary spiral.

“We are not seeing this sort of [deflationary] phenomena at this time,” he says. Often lower prices are the result of the destruction of entire sectors rather than relative price adjustments. It’s a long process, he says, which takes movements of workers from one sector to another.

Draghi again praises action by Portuguese authorities in response to Banco Espirito Santo, which reassured markets and investors. There’s still a lot of work to do in cleaning up the mess, but the bad bank created by authorities has acknowledged losses and impariments.

The resolution fund owns this bank and will “hopefully soon” sell it back, Draghi says, which means no public money will have been used in the rescue — a point he argues has been overlooked.

As expected, Draghi outlined a “wait-and-see” approach in the wake of measures announced two months ago. He argued that the ECB’s decision in June to implement a negative deposit rate has gone a long way toward easing monetary conditions in the euro zone. And he emphasizes the ECB has high hopes for the targeted long-term refinancing operations that are set to take place next month.

He also argues that the ECB’s actions have provided conditions for weaker euro and emphasized that market participants now understand that U.S. and euro-zone monetary policy will be on a diverging path for a very long time. Specifically, he says real interest rates in the euro area will remain negative far longer than those in the U.S.

At the same time, he acknowledges that the Ukraine conflict has added downside risks to an economic recovery that is “weak, fragile and uneven.” But he continues to dismiss fears of potential deflation, saying a further dip in annual inflation in July was due largely to lower food and energy prices.

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